Pitney Bowes Inc.(PBI) reported second-quarter 2013 pro forma earnings per share of 52 cents, which was 15.6% above the Zacks Consensus Estimate of 45 cents. Quarterly earnings were up 1.9% year over year from 51 cents per share. Earnings for the second quarter 2012 exclude goodwill impairment charge of 40 cents, restructuring charges of 7 cents and loss of 10 cents due to discontinued operations. The company’s strategic initiatives have paid well for the company.
On GAAP basis, the company reported a loss of 5 cents as it includes the impact of one-time items.
Total Revenue
Total revenue for the second quarter was $1.16 billion, down 0.7% from $1.17 billion in the prior-year quarter. The top line benefited from double-digit growth in the Production Mail and Mail Services segments. International Mailing revenues were flat year over year. This was offset by lower recurring revenues from the SMB group, lower licensing revenues in the Software segment and lower revenues due to continued pricing pressure on some contract renewals in the Management Services segment. Revenues for the quarter were below the Zacks Consensus Estimate of $1.18 million.
Segment Performance
Small and Medium Business (SMB) Solutions segment sales declined 3% year over year on a constant currency basis to $597 million, as a result of a 4% fall in North America Mailing revenues. Revenues in International Mailing segment were flat year over year.
Enterprise Business Solutions segment sales increased by 3% year over year to $561 million, led by an 18% increase in revenues from worldwide production mail. The worldwide production mail benefited from the installation of large production print and inserting equipment orders in North America. In addition, demand for new products and printers resulted in a higher backlog at the end of the quarter. The Mail service division also reported a 10% growth driven by transactions associated with the company’s ecommerce solutions for cross-border package delivery, as well as growth in presort volumes for both Standard mail and First Class mail. This was partially offset by a 7% revenue decline in Software, 3% decline in Management services and a 17% decline in Marketing services.
Income
The company incurred total SG&A expense of approximately $376.6 million in the quarter versus approximately $380.7 million in the second quarter of 2012. R&D expense was $31.5 million versus $33.8 million. Income from continuing operations of the company was $30.6 million compared with $161.1 million in the prior-year period. Lower income was attributable to higher cost of equipment sales and higher cost of business services. Therefore, the operating margin declined significantly to 2.6% from 13.8% in the comparable prior-year quarter.
Balance Sheet
Cash and cash equivalents were $608.6 million with long-term debt of $3.6 billion and shareholder’s equity of $22.3 million compared to prior-year figures of $913.2 million, $3.64 billion and shareholders’ equity of $110.6 million, respectively. Free cash flow for the quarter was $124 million.
Divestitures
Pitney Bowes entered into a definitive agreement to divest its North America portion of the Management Services business to funds affiliated with Apollo Global Management, LLC. Pitney Bowes will show this business as a discontinued operation beginning third quarter. The deal is valued at approximately $400 million and is expected to close by the fourth quarter of 2013.
On May 17, 2013, Pitney Bowes announced its plan to sell the management services business wing in the United Kingdom and Republic of Ireland to Swiss Post Solutions.
Outlook
Concurrent with the earnings release, Pitney lowered its guidance for 2013.
For 2013, the company expects revenues, excluding the impact of currency, to range between a decline of 1% to a 2% increase. Revenue guidance was lowered from the previous guidance of flat to up 3%. The company expects earnings per share from continuing operations to be in the range of $1.62 to $1.77 a share, as against the $1.85 to $2.00 range mentioned previously. Free cash flow for 2013 is expected to be in the range of $575 million to $675 million compared to the previous guidance range of $600 million to $700 million.
Pitney Bowes currently has a Zacks Rank #3 (Hold). However, some other companies that can be considered at the moment are Lexmark International Inc. (LXK), Ricoh Company Ltd. (RICOY) and Xerox Corporation (XRX). All three carry a Zacks Rank #2 (Buy).
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